City of Los Angeles v. Furman Selz Capital Management, L.L.C

In this case, we are concerned with the interplay between two unrelated provisions of the Revenue and Taxation Code. The first provision imposes a higher net income tax rate on financial corporations in lieu of other taxes, including municipal taxes. (Rev. & Tax. Code, § 23182.) The second provision permits a wholly-owned limited liability company to be disregarded as a separate entity for tax purposes and to be taxed as a division of its parent corporation. (Rev. & Tax. Code, § 23038.) In this case, a municipality imposes a gross receipts tax on limited liability companies doing business within the municipality and is seeking to impose its gross receipts tax on a limited liability company, wholly owned by a financial corporation, whose separate existence has been disregarded for tax purposes. The municipality acknowledges that it could not impose the gross receipts tax on the parent financial corporation, but contends the in lieu tax provisions are not applicable to the limited liability company. We conclude the municipality may not levy taxes on a limited liability company wholly owned by a financial corporation, where the income of the limited liability company has…